How Do People Get A Bad Credit Score?

Nowadays, it’s virtually impossible to get approved for a loan, a lease, sometimes even a good job if your credit rating is poor. The gist of it is that poorly managed credit reflects on you as an individual. [pullquote]People who keep a watchful eye on their credit score are more likely to secure mortgages at favorable rates, auto loans, refinancing rates, and even higher-paying jobs.[/pullquote] It is difficult to become the chief financial officer or accounting officer of a corporation if your credit score indicates you have mismanaged or misappropriated personal funds. For many reasons, credit needs to be nurtured and managed.

What Leads To Bad Credit?

Before we answer this question, it is important that you check your credit score. This is the first step towards rectifying any anomalies in your credit report. Typically, there are many reasons why your credit report doesn’t meet expectations. These include the following:

Multiple Credit Card Applications

Did you know that if you make multiple applications for credit cards, loans, and the like, it works against your credit score? The net effect of making applications for loans or credit cards can dent your credit score by up to 10%. Is important to understand that this is time sensitive. Too many inquiries over a short period will be detrimental to your credit score. If you have an existing credit card that you want to close, be sure that you’ve paid off the remaining balance. If you don’t, your credit score will drop.

Your Credit Portfolio Affects Your Credit Score

You may not know it, but the type of credit that you have available also affects your credit score. If your credit portfolio contains only credit cards, your credit score will be adversely affected. It is important to diversify your portfolio to show lenders that you can effectively manage credit across the spectrum. A good idea to diversify your credit portfolio is to have auto loans, mortgages, student loans, personal loans, credit cards and the like thrown into the mix. If you manage all your credit effectively, your credit score will rise.

Maxing Out Credit Cards Is A No-No

Credit cards have limits, and pushing those limits has consequences. It is never advisable to maximize your expenditure and minimize your available credit. This indicates that you are highly indebted and likely will default on your credit card payments. If your credit utilization hits 100%, your credit score will suffer. A good idea is to maintain plenty of available credit on your cards so that you can service your debt effectively. Besides, you don’t want to be paying exorbitant interest repayments on thousands of dollars in credit card debt.

Judgments against You Will Affect Your Credit Score

If you never paid state tax on earnings and never responded to an order to pay that income tax, a lien will be issued against you. This comes with a tremendous interest rate penalty, and it goes in your credit report. Liens and other judgments should be settled in full, or a repayment plan should be initiated as quickly as possible. Creditors will look at liens and judgments unfavorably. It indicates that you have not wanted to pay your bills, or are not able to pay your bills. On the flip side, a judgment that is paid up is far better than a judgment that goes unpaid.

Debt Collectors – Avoid Getting Into Sticky Situations

If you have failed to pay an account, your account may be sent to a debt collections agency. These agencies apply pressure on you to make good on your payments. It is unpleasant to receive phone calls, emails and regular mail about money that is owing. The worst part is that these debt collection agencies can report you to credit bureaus. This will hurt your credit score. If a creditor has given up on trying to collect payments from you, this will be reflected in your credit report. It then gets turned over to a debt collections agency.